113 A.D.2d 9 | N.Y. App. Div. | 1985
In the spring and early summer of 1985, New York’s medical community engaged in a strenuous public campaign for substantive and procedural reform of the State’s medical malpractice liability system. In several parts of the State, the protests were so intense that physicians engaged in slowdowns and refusals to provide other than emergency services. Among the concerns particularly expressed were the rapid escalation of malpractice insurance premium rates and a trend in jury awards in malpractice cases which practitioners believed exposed them to the risk of being held liable for amounts well in excess of the generally available $1 million/ $3 million limits of insurance coverage. The Legislature took up these concerns and, in the closing days of the 1985 session, enacted the Medical Malpractice Reform Act (the Act) (L 1985, ch 294, eff July 1, 1985).
The Act institutes reform in several areas, including moderating attorneys’ contingent fees, providing for periodic payments of large awards and penalizing frivolous claims. At issue in the instant action is the portion of the Act addressed to the problems of making excess insurance coverage available to practitioners and the cost thereof. Here, only a temporary statutory solution was achieved. Under sections 17 and 18 of the Act, malpractice insurance carriers are mandated to offer excess coverage of $1 million/$3 million to physicians and dentists having primary coverage in those amounts. Section 19 of the Act imposes the obligation on each general hospital in the State to purchase the foregoing excess insurance coverage on behalf of any physician or dentist having the requisite primary coverage who designates it hs the hospital with whom the practitioner is primarily affiliated. The Act, however, only keeps sections 17 through 19 in effect for one year by specifically providing for their expiration on July 1, 1986 (§ 25).
Regarding reimbursement of hospitals for their payments of premiums for the excess insurance, plaintiffs and defendants agree that the legislative design was to pass on all or at least some of these costs to the State’s principal third-party payors of hospital inpatient care charges, namely, Blue Cross, Medicaid and Medicare, through defendant State Commissioner of Health’s rate-determination authority over general hospitals’ charges to such third-party payors under Public Health Law article 28. The Act sets forth two separate sections for direct
In August 1985, after approval of the Act, events occurred which prompted the commencement of this lawsuit. First, the State Department of Health advised plaintiff Hospital Association of New York State (HANYS) that the contribution from each third-party payor for such excess coverage would, in substance, be allocated according to previously determined ratios based on the respective utilization of inpatient hospital services by each payor’s beneficiaries and subscribers and that there would be "no cross subsidization between payors”. Then, the Regional Administrator for New York of the Health Care
The instant action was thereupon commenced, in which plaintiffs seek a judgment declaring the invalidity of section 19 of the Act as implemented by the Commissioner on the grounds that (1) sections 19 through 21 represent a unified statutory scheme combining the hospitals’ obligation to procure the excess insurance coverage with the total pass-through of the cost thereof to third-party payors; therefore, if there is a failure to provide full reimbursement under sections 20 and 21, because of the Commissioner’s refusal to provide full reimbursement, section 19’s mandate to the hospitals regarding procurement of that coverage must also fail; and (2) without full reimbursement, section 19 unconstitutionally deprives plaintiffs of their property without just compensation and denies them due process and the equal protection of the laws. The case came before Special Term on an expedited motion by plaintiffs for summary judgment, plaintiffs having advised the court that the medical insurance carrier would only provide retroactive coverage to the July 1, 1985 effective date of the Act if policies were obtained before the first day of November 1985. Special Term promptly rendered a Bench decision denying plaintiffs’ motion for summary judgment, construing sections 20 and 21 of the Act as mandating full reimbursement to the hospitals, but further holding that even if full reimbursement was not required under the Act, section 19 was not unconstitutional. This appeal then ensued, which we have also heard on an expedited basis in view of the November 1, 1985 deadline for procurement of insurance coverage retroactive to the effective date of the Act.
Preliminarily, we reject defendants’ contention that the instant action is not ripe for declaratory relief because no final determination has been made by HHS on whether the insurance premium costs involved herein will be allowable as a legitimate Medicare expense between July 1, 1985 and December 31, 1985. The fact is that plaintiffs presently are obliged under the Act to incur the cost of obtaining excess
Turning then, to the merits, as we shall explain below, statutory analysis and reference to the scant legislative history of sections 19 through 21 furnish no clear-cut resolution of whether full reimbursement is mandated under these provisions of the Act. This being the case, we have concluded that the determinative principle here is the necessity to avoid a construction of the statute under which grave doubts would exist as to its constitutionality. There is language in sections 20 and 21, and acknowledged background circumstances at the time of enactment, which sustain the position of each side to this controversy. In favor of full reimbursement, it is not seriously disputed that employment in section 20 of the phrase "adjustment * * * [of] the inpatient revenue cap * * * to reflect the cost of such excess coverage”, was expected to effect full reimbursement of the insurance costs in question from third-party payors from July 1, 1985 to December 31, 1985. This would construe section 20 consistently with the portion of Public Health Law § 2807-a (6) (a) directing the fixing of hospital charges "sufficient to generate the inpatient revenue authorized by the revenue cap”. The last quoted portion certainly implies that determining (or adjusting) the revenue cap not only serves to establish what may be considered as an allowable, albeit not necessarily fully recoverable, expense for rate-making purposes (as defendants would read both sections 20 and 21 of the Act), but also to establish the aggregate amount actually to be recovered by hospitals for such allowable costs. Regarding the statutory direction for the second half-year period of reimbursement, section 21 repeats verbatim the language of section 20 except for substitution of the phrase "established rate” for "inpatient revenue cap”, which is to be adjusted to reflect the additional insurance costs. This single change in phraseology seems to accomplish nothing more than describing in another way the fixing of
Contrariwise, cogent bases also exist in support of defendants’ position that sections 20 and 21 of the Act were not intended to mandate full reimbursement through cross-subsidization from other third-party payors for the short-fall attributable to the loss of Medicare charges for the subject insurance expenses. Present Public Health Law § 2807-a (renum 2808-c by L 1985, ch 807, eff Jan. 1, 1986), where "revenue cap” is defined and applied, expressly provides for apportionment of the revenue cap among the principal third-party payors on the basis of the comparative utilization of inpatient hospital services by the beneficiaries and subscribers of the payors (Public Health Law § 2807-a [1]). It is hardly unreasonable for the Commissioner to interpret the foregoing provision as a limitation on the liability of each third-party payor for reimbursement of the cost of inpatient care (including malpractice insurance) beyond its beneficiaries’ or subscribers’ proportionate utilization of such hospital services, and for him further to construe the revenue cap adjustment language in section 20 of the Act in parallel fashion. As to the operative phrase "established rate” in section 21 of the Act, to be applied after December 31, 1985, while the statute does not state it in so many words, it is readily inferable that the quoted phrase refers to the statutory methodology for establishment of rates by the Commissioner beginning January 1, 1986, as specifically provided for in a new section 2807-a (L 1985, ch 807, § 4, eff Jan. 1, 1986). That new section lists the
As the foregoing analysis demonstrates at the very least, defendants’ interpretation of sections 20 and 21 of the Act, as not requiring full reimbursement on the subject costs through cross-subsidization, cannot be said to be unreasonable or in direct conflict with the plain meaning of the statute. Ordinarily when dealing with the such technical statutory phrases as adjustment to the inpatient revenue cap and to the established rate, such construction of the statute by the agencies responsible for its administration should prevail (Matter of Howard v Wyman, 28 NY2d 434, 438). That principle would be applied here, but for our grave doubts as to the constitutionality of imposing the resultant financial loss upon general hospitals as taking of property without just compensation or a denial of substantive due process. Whether the Medicare portion of insurance cost recovery is in excess of $16 million as plaintiffs contend, or some lesser amount as estimated by defendants, there is no question that the losses would be substantial and would work serious hardships on some general hospitals in the State that are already in precarious financial circumstances. It is also undeniable that, whatever indirect benefits there may be to the hospitals as described by Special Term through assuring that practitioners will continue to function and admit patients to their facilities, the only direct beneficiaries of section 19 of the Act are private doctors and dentists who are neither the employees nor agents of the general hospitals and who are to be provided excess malpractice insurance covering activities which may have no connection whatsoever with inpatient hospital care. We may assume, as defendants maintain, that legislation to insure the free flow of medical services through relief from some of the defects in the malpractice liability system constitutes a valid exercise of the State’s police power. This, however, does not end the constitutional inquiry. Lutheran Church v City of New York (35 NY2d 121, 128-132) teaches that regulation of private
The validity of the- Act as defendants construe it is equally at risk under substantive due process analysis. "The ultimate evil of a deprivation of property, or better, a frustration of property rights, under the guise of an exercise of the police power is that it forces the owner to assume the cost of providing a benefit to the public without recoupment” (French Investing Co. v City of New York, 39 NY2d 587, 596, appeal dismissed 429 US 990, rearg denied 40 NY2d 846). We are unpersuaded by defendants’ argument that the hospitals will recoup their losses through increased Medicare revenue when regulation of charges under that program is restored to HHS at the end of 1985. Any such increase in income is at this point speculative (see, French Investing Co. v City of New York, supra, p 597). In any event, the hospitals’ entitlement to the benefits from the change in Medicare funding regulation is in no way dependent upon or indeed even related in any way to their obligation to absorb the substantial losses in providing excess insurance coverage under the Act as interpreted by defendants. It is also noteworthy that defendants have not controverted plaintiffs’ position that the Commissioner has legal authority to make the adjustments necessary to accomplish full reimbursement.
The lines of authorities cited by defendants in support of the opposite conclusion do not, in our view, alleviate the constitutional jeopardy in which the Act is placed by denial of full reimbursement. Regulation of space allotted to hospital beds, although impacting on hospital revenues (see, Matter of
We need not finally dispose of the constitutional issue, however, in order to resolve the instant dispute. It is sufficient that the imposition upon general hospitals of these admittedly substantial costs involved in procuring insurance coverage for private practitioners demonstrably raises grave doubts concerning the constitutionality of the legislation. Under those circumstances and long-settled authority, we construe the ambiguities in the statute to avoid the risk of invalidation (McKinney’s Cons Laws of NY, Book 1, Statutes § 150, p 321; People v Nieves, 36 NY2d 396, 400; People v Pickett, 19 NY2d 170, 176-177; Matter of Coates, 9 NY2d 242, 253, appeal dismissed sub nom. Coates v Walters, 368 US 34). Accordingly, despite the absence of a demand on plaintiffs’ part for such relief in their declaratory judgment complaint, we exercise our “ 'power to declare the rights and legal relations of the parties whatever they may be’ ” (Cahill v Regan, 5 NY2d 292, 298, quoting Rockland Light & Power Co. v City of New York, 289 NY 45, 51) and declare that the proper construction of sections 20 and 21 of the Act requires full reimbursement to
Weiss, J. (concurring). While I am in total agreement with the declaration of plaintiffs’ rights made by the majority in this case, I concur separately due to the difference in legal reasoning which leads me to the conclusion that plaintiffs are entitled to full reimbursement for the cost of providing excess insurance coverage to physicians and dentists. It is my view that plaintiffs’ entitlement to this relief is mandated by the clear and unambiguous language of the Medical Malpractice Reform Act (the Act) without resort to any analysis of the various constitutional arguments advanced by plaintiffs.
The relevant provisions of the Act (§§ 20, 21) direct that the State Commissioner of Health "shall adjust” the applicable payment rates to hospitals and that the adjustment "shall be made * * * to reflect the cost of such excess coverage”. Use of this language indicates to me the Legislature’s desire to ensure that those hospitals required to provide the excess insurance coverage be fully reimbursed for the total cost thereof. To adopt defendants’ contention that sections 20 and 21 of the Act were meant to exclude from the payment rate adjustment that portion of the excess insurance cost attributable to Medicare patients would be to ignore the plain and ordinary meaning of the words used. Such a conclusion would require judicial legislation rather than judicial interpretation. I therefore see no other way to read the language of sections 20 and 21 requiring the Commissioner to adjust hospital payment rates to reflect the excess insurance costs except to say that full reimbursement for the entire cost was intended by the Legislature.
Kane, J. P., Yesawich, Jr., and Harvey, JJ., concur with Levine, J.; Weiss, J., concurs in a separate opinion.
Order modified, on the law, without costs, by declaring that section 19 of the Medical Malpractice Reform Act is not void and unenforceable because sections 20 and 21 thereof mandate